Top business tips from an accountant
As a small business or start-up owner, handling your finances can be challenging.
But don’t worry if you’re unfamiliar with accounting – you’re not alone.
Over a quarter (26%) of small business owners claim to have little to no accounting knowledge.
We’re here to help make things easier with guidance from AJ Dosani, a partner at Ace Accountancy.
Read on for essential guidance on starting and running a business, including:
- how to form a business
- trading status and banking information
- accounts and record keeping.
Plus, we’ll reveal some of the top business tips you should know.
1. Setting up a business – company formation options
One of the main questions start-up founders have about which business type they should choose.
Here are three of the most common options business owners go for when starting their own business:
Sole trader
This is the simplest and most common business structure in the UK.
As a sole trader, you are personally responsible for business debts but can keep all profits after tax.
Your business assets are not separate from your personal ones.
As a sole trader, you must register with HM Revenue and Customs (HMRC) and fill out a self-assessment tax return annually.
“You are the business, the business is you, and you pay the taxes,” says AJ.
“The business pays its taxes once a year, and you file a tax return by the yearly deadline of January 31st – it’s nice and simple.”
AJ says that in most scenarios, the sole trader route is the easiest for start-ups.
This is partly because moving from a sole trader to a limited company can be fairly straightforward.
Limited company
A limited company is legally separate from its managers (the directors) and its owners (the shareholders).
This type of structure offers limited liability protection.
This means that the directors’ personal assets are protected in the case of any company debts.
To run a limited company, you must register your business with Companies House and file annual accounts and returns.
You pay Corporation Tax on profits, and then directors can take salaries and dividends, which are taxed at different rates.
“In effect, the company sits separately to yourself and pays its own taxes,” says AJ.
“As a director, as a shareholder – depending on your scenario as a founder – you will pay your taxes accordingly.”
Partnership
In a partnership, two or more people share ownership and responsibilities.
In a general partnership, all partners are responsible for business debts, and profits and losses are usually shared equally.
There’s no need to register with Companies House.
A limited partnership has general partners who manage the business and are liable, but also has limited partners who are investors (and do not manage the business), and have limited liability.
This type of partnership needs to be registered with Companies House.
A limited liability partnership (LLP) combines aspects of partnerships and limited companies.
You must be registered with Companies House and file accounts through the online service.
Just like a company, partners are offered limited liability protection.
Solicitors and accountants often use the LLP structure.
“An LLP is, by and large, only for professional services because there are different niche reasons for those needing it,” says AJ.
For example, this structure can offer stability and continuity, even if the partners change.
2. Trading status and banking information
When you start a new business, it’s important to let the right organisations know that you’ve started trading.
This is essential for following the law and getting your business off to a good start.
So, who do you need to inform?
HM Revenue and Customs (HMRC) and Companies House
If you’re a sole trader or part of a partnership:
Your first step is to register with HMRC for Self Assessment and Class 2 National Insurance.
“With the sole trader route, it’s really simple – you can fill out a form online, or you can call HMRC,” says AJ.
“I’d recommend calling at 8am on a weekday morning because that’s when they’re quiet.”
You’ll receive a Unique Tax Reference number (UTR number) through the post in about a week or two.
Read more about how to register with HMRC as a sole trader.
If you’re a limited company:
Limited companies must register with Companies House.
You must also register with HMRC for Corporation Tax within three months of trading.
AJ says that it’s a good idea to look for two things in the post when you register online with Companies House.
“You’ll get a company UTR to use for dealing with the HMRC, and you’ll get an authentication code – which is like a password – from Companies House.”
You’ll need these if you want to change shareholders’ and directors’ information in the future.
Regardless of your business structure, if you exceed the VAT threshold (currently £90,000), you must register for VAT with HMRC.
Some smaller businesses might also consider voluntary VAT registration to enable you to reclaim VAT on purchases and expenses.
Your bank
It’s best to set up a separate business bank account to manage your finances.
You should also let your bank know about your business status.
“As a sole trader, you technically don’t need to have a separate bank account, but we always recommend that you do – ideally, it should be a business account because it’s more streamlined,” says AJ.
“When it comes to managing your numbers and providing them to your accountant at the end of the year, it’s a lot easier if your business expenses aren’t mixed up with your personal expenses.”
If you have chosen a limited company structure, you must have a separate business bank account.
This is because, by its very nature, the company is a separate entity from you as a director or shareholder.
Also, consider whether you need to contact the following:
The local council
You may need to inform your local council about your new business.
This might be the case if you operate from business premises.
You may need to register for business rates, which are a tax on non-domestic properties.
Depending on your business, consider whether you need to comply with regulations or apply for specific licences or permits – for selling food, for example.
Specific sector authorities
If you need licences or permits to run your specific type of business, you may need to let the appropriate authorities know that you intend to start trading.
For example, if you’re setting up a childcare service, you must register with Ofsted.
Insurance providers
Depending on your industry and the nature of your business, you may need business insurance coverage.
This can include public liability insurance or professional indemnity insurance.
Employers’ liability insurance is a legal requirement if you have staff.
Read more about small business insurance in the UK.
3. Accounts and record keeping
How do you keep accounts and a record of what your business is generating?
“This is probably the most important aspect of running a business,” says AJ.
Rather than keeping accounts in a ledger book, consider a digital accounting platform such as:
These are a good option whether you’re a sole trader or a limited company.
They provide an overview of your business’s financial health and show you areas you may need to address.
AJ says this can include which customers owe you money, who you need to pay, and how you are managing your cash flow.
“That’s the beauty of managing your records with online bookkeeping,” he explains.
Once you have chosen your accounting platform, remember AJ’s key tip: ensure you set up your business accounts correctly.
“When it’s set up incorrectly, untangling that year-end for your accountant will be quite messy,” he says.
“Make sure you know what you’re doing with it before you start.”
Find out about Making Tax Digital – a government scheme to encourage businesses to manage their tax online, which is set to expand to those with incomes over £20,000.
Your quick bookkeeping glossary
When setting up a business, there are a few key bookkeeping terms you may hear regularly.
Here are a few to know:
• profit and loss (P&L) – this is a summary of revenue, costs and expenses over a set period, which is used to show a company’s profits
• cash flow forecast – this is a projection of future cash going in and out of the company – try our cash flow forecast template
• balance sheet – this is a quick picture of a company’s assets, liabilities, and equity – a reflection of its finances at any one time
• accounts receivable – this is the money that’s owed to your company by your customers
• accounts payable – this is a record of the money your company owes to suppliers or creditors.
4. Top business accounting tips you should know
Knowing a few essential tips can help you stay on track to successful accounting for your start-up.
Try these ideas to stay organised and help boost your business health.
Tip: Be disciplined when it comes to checking your accounts
Learning the art of being disciplined when it comes to your accounting practises is key, says AJ, who advises smaller business owners to look over their books weekly or monthly at the latest.
“It’s super important because you’ll know whether that big client that you’ve taken on has actually paid you,” explains AJ.
“Sometimes we just look at our bank account and forget what we’re waiting for – that discipline is going to help you keep on top of your finances.”
Tip: Plan for your tax bill
It’s a good idea to set money aside for taxes every time you are paid by a client so that you always have enough to pay your next tax bill.
Knowing your tax deadlines and what you need to do in good time will help you avoid being stuck for cash (or time) when it comes to paying your bill.
Consider working with an accountant to maximise the deductions you’re legally allowed to make and ensure you’ve addressed every detail in your tax return.
Read about the main taxes that apply to small businesses.
Tip: Don’t just organise your accounts – analyse them
It pays to keep all your financial records in order with accounting software – but once you have your financial statements, make them work harder for you.
Review your finances regularly, not only to monitor your cash flow but also to help you make strategic decisions about your business.
For instance, analysing your P&L could help you identify sales trends, which could inform your future plans for products and services to grow your business.
Similarly, it can show areas where your costs could be streamlined or reduced – for example, if you’re spending a particularly high amount on electricity, you might consider investing in energy-efficient equipment.
For more information and guidance, visit British Business Bank's Business Guidance section and the Support and Guidance section of the Start Up Loans website.
Disclaimer: We make reasonable efforts to keep the content of this article up to date, but we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. This article is intended for general information purposes only and does not constitute advice of any kind, including legal, financial, tax or other professional advice. You should always seek professional or specialist advice or support before doing anything on the basis of the content of this article.
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